In prosperity and adversity? The value of high-performance work practices for SMEs under conditions of environmental hostility and social embeddedness

Abstract

Purpose: Taking a resource-based view, we analyse the effect of high-performance work practices (HPWPs) on the performance of small and medium-sized enterprises (SMEs) under conditions of environmental hostility, and consider how this relationship is influenced by managers’ embeddedness in social networks. We argue that high perceived levels of environmental hostility strengthen the strategic value of HPWPs in SMEs, whereas high levels of manager embeddedness in social networks weaken this contingent relationship. Design/methodology/approach: These hypotheses were tested in a sample of 249 SMEs, from two Spanish industries related to food production, using linear regression with two- and three- way interaction effects. Findings: The study results show that the implementation of HPWPs benefits SMEs’ performance in hostile environments. However, the dark side of managers’ social capital could undermine any such benefit, especially if there is a high degree of network closure. In hostile contexts, such closure appears to limit managers’ willingness to depart from the common practice of reducing investment in human resources. Originality: This study advances our understanding of the specific conditions under which HPWPs sustain SME performance. It also introduces the dark side of managers’ social capital into considerations of this relationship. Our findings provide new insights that are counterintuitive to business practice. Practical implications: Contrary to predominant beliefs that managers facing economic adversity should reduce costs by cutting investment in personnel development, our study indicates that supporting HPWPs enhances a firm’s objective financial performance.